Monthly Archives: September 2013

U.S. Department of Labor: Unpaid Law Students Who Work Solely on Pro Bono Matters and Who Receive an Educational Benefit Are Not Employees under Fair Labor Standards Act

By Andrew Moskowitz and Eleanor Lipsky
amoskowitz@pashmanstein.com // elipsky@pashmanstein.com

On September 12, 2013, the U.S. Department of Labor (DOL) issued a letter to the American Bar Association which clarified when private law firms may utilize the services of law students for unpaid internships.  The clarification is important at a time when unpaid internships have attracted scrutiny and a number of class actions have already been filed on behalf of unpaid interns.

In its guidance letter (available at www.americanbar.org/content/dam/aba/images/news/PDF/ MPS_Letter _reFLSA_091213.pdf), the DOL explained that, under the Fair Labor Standards Act (FLSA), those who perform work for a for-profit entity are generally considered employees and are entitled to minimum wage and overtime.  However, if certain criteria are met, for-profit companies may hire individuals for an unpaid internship or training program.  Such circumstances could apply to law students who perform unpaid internships with a private firm if the experience is for the student’s own educational benefit and the student only works on pro bono matters.

Specifically, the DOL stated that, if all of the following criteria are met, then an employment relationship under the FLSA does not exist and the student may be considered a trainee rather than employee:

  1. The internship is similar to training that would be given in an educational environment, even if it includes actual operation of the employer’s facilities;
  2. The internship experience is meant to benefit the intern;
  3. The intern is not meant to replace regular employees, but works under close supervision of existing employees;
  4. The employer must not gain an immediate advantage from the intern, and the employer’s operations may even be impeded;
  5. The intern is not necessarily guaranteed a job at the conclusion of the internship; and
  6. The employer and intern have an understanding that wages will not be paid for the intern’s time.

The DOL noted that, where a pro bono experience is “academically oriented for the benefit of the student” and the law student’s work does not generate a fee or otherwise free up staff resources for billable work, the student is considered a trainee.  Therefore, he or she would not be entitled to minimum wage or overtime.

It should be noted that the above rule does not apply in the same manner to recent law school graduates who have not yet passed a state bar.   The DOL stated that law graduates may not “volunteer” for private law firms without receiving pay in some form.  The key difference is that law school graduates have already completed their legal education.  Additionally, the concern is that law schools cannot act as intermediaries to the same extent between graduates and law firms and are therefore unable to ensure compliance with the DOL’s guidance.

The DOL’s letter will ideally have the effect of increasing student volunteerism and allowing private law firms to continue to provide pro bono legal assistance.  However, law firms must ensure that their internships meet the above criteria.  Otherwise, under the FLSA, the firms’ interns may be an employee entitled to wages.

Finally, it should be further noted that the above addresses federal law only.  To qualify as a trainee under New Jersey law, the training must occur outside regular work hours.  It is therefore unclear whether law students could perform pro bono work for New Jersey law firms without being deemed employees under New Jersey law.

NJ Appellate Division Upholds Summary Judgment in Favor of Former Employee and Employer on Alleged Trade Secret Theft

By Sean Mack, Esq.
smack@pashmanstein.com

NJ Appellate Division: Former employees can use substantial knowledge gained from their work experience to compete, where the manufacturing process is largely disclosed publicly and is susceptible to reverse engineering  (UCB Manufacturing, Inc. v. Tris Pharma, Inc., 11-2-1124 , (App. Div. August 27, 2013))

The New Jersey Appellate Division, interpreting New York law, upheld the grant of summary judgment in favor of a former employee and his new employer who were alleged to have stolen trade secrets and confidential manufacturing information to develop a competing generic cough syrup.   The court’s conclusion rested primarily on the trial court’s finding that no trade secrets had been articulated and the alleged confidential information could be gleaned from an expired patent, other public information, and the former employee’s general knowledge and negative-know-how – knowing what does not work.

Plaintiff, the manufacturer of Tussionex, a cough syrup, brought claims of breach of a confidentiality agreement and unfair competition against one of its former employees and his new employer, a competitor generic drug manufacturer.  Plaintiff alleged that defendants stole confidential information and used that information to develop a generic version of Tussionex.

The former employee was primarily responsible for formulation development and was the lead formulator for one of the cough syrups, which was based on a proprietary technology involving an extended release suspension system that utilizes a coated polymer resin to control the rate of drug release.  During a five day evidentiary hearing, experts testified about the complexity of the manufacturing process for Tussionex, which prevented generic alternatives from quickly entering the market place after the plaintiff’s patent expired.

On a summary judgment motion, the parties disputed whether defendants manufactured their generic alternative using confidential and proprietary information, or from publicly available information and general knowledge and skill defendant obtained from his work experience.

Despite those disputed facts, the trial court concluded, and the Appellate Division affirmed, that much of the alleged confidential information is disclosed on the product label and patent and is susceptible to reverse engineering, and therefore is not subject to protection as a trade secret or as confidential information.

The Appellate Division then confirmed the grant of summary judgment in favor of defendants, finding that the plaintiff had no legitimate business interest in preventing the former employee and competitor from using non-confidential information and know-how to compete with Plaintiff.  The court went on to find that the confidentiality agreement signed by defendant was overbroad in that it sought to restrain the use or disclosure of knowledge and information not protectable as a trade secret and imposed unreasonable restrictions on defendant’s employability in his specialized field.